Overview of Global Real Estate for HNWI 2017.

Effects of CBI and RBI on Real Estate Markets

Real estate is a subject that is of vital interests to most people. We live in houses, we rent houses, we invest in houses and commercial properties. Real Estate investments still form large share in the portfolio of many investors. Construction and Real estate sectors are very important for the economies of the countries, they form large part of GDP, create new jobs, employ people. So it is no wonder that real estate investment forms essential part in many Citizenship and Residency by Investment programmes. It is also no wonder that Citizenship and Residency programmes are of interest to High Net Worth Individuals of the world. Today we will try to provide a brief analysis of the HNWI tendencies around the world, their real estate preferences, and will talk about three European countries, which introduced Citizenship and Residency programmes with real estate component. We will see what influence the citizenship programmes introduction had on each country's Real Estate Market.

Overview of the Global Market for HNWI
This year wealth data expert Wealth-X conducted an extensive research for Knight Frank Wealth Report. In their report they have analysed number of Millionaires (net worth more than 5 mln USD), Ultra High Networth Individuals (net worth from 50 mln USD) and demi-billionaires (net worth from 500 mln USD).

The figures in itself do not mean much – we need to understand what are the tendencies. 2017 saw a 10% rise in the number of HNWI. It is a pretty impressive figure if one takes into account that for the previous 5 years the cumulative increase was just 18%. Asia leads the pace with some analytics saying that the number of HNWI in China will more than double in the next few years.

Wealth-X also provides information on the wealthiest countries of the world, i.e. the number of UHNWI per 10.000 population. It is no wonder that Monaco, Hong Kong, Switzerland and Singapore are at the top of the rank. Cyprus stands at No 28 sharing its position with Russia and Portugal.

For it's 2018 edition of Wealth Report Knight Frank analyzed number of houses that HNWI own around the world. It is interesting to see that wealthy people from countries with more volatile political and economic situation tend to own more properties. It is important to remember that the data is provided only for the individuals and family offices, not for property investment portfolios.

Where do UHNWI plan to invest in Real Estate in 2018? Within their country or abroad? Knight Frank Attitude Survey provides following information – there is an appetite for investing abroad. UK and US remain the most popular counties for the purchase of Real Estate.

The average price index increased 2,1% overall in 2017. The previous year the increase constituted 1,4% due to political instability. In the current rating most cities showed positive trend while 11% of them doubled the rate.

Another interesting and useful piece of statistics comes down to a simple question – how many square meters you can buy for a 1 million USD in different countries of the world. The investor can get a clear picture as to space-to-location correlation and weigh it all up before making his decision.

And finally, moving from real estate to alternative citizenship subject, we can clearly see that having one or more alternative citizenship apart from the birth nationality is a growing trend if not already a necessity. 34% of the world's richest already have at least one alternative citizenship, while 21% are planning to obtain one

Having established the trends among the world's HNWI, which are, obviously, the main participants of the investment programmes, let's have a look at how these schemes influence the receiving countries' real estate market. We have chosen the 3 most popular European countries programmes and analysed their statistics, kindly provided by our colleagues from the Malta Sotheby's International Realty, Portugal Sotheby's International Realty and our own Cyprus Sotheby's International Realty
Real estate transactions have grown in Portugal by 25% in value and 17% in units between 2014, when the programme was introduced, and 2015 (Portuguese Institute of Statistics), in Lisbon the increase was 42% in value and 31% in units. The years 2016 and 2017 showed a new increase of 20% in number of transactions and 2018 is expected to meet a similar growth.
With the introduction of residency programme with its real estate component of €500 000 the property prices have gone up, as a lot of foreigners are eager to invest. The main clients come from France, UK, Brazil, China, Italy, Sweden, South Africa and Middle East.
There is currently more demand than supply in the main cities, Lisbon, Porto and Algarve. 70% of Portugal SIR clients are foreigners and overall 1 in every 5 clients is a foreigner.
Portugal Sotheby's International realty has an €900 000 average sales transaction while the national average stays at around €150 000.

According to the fourth annual statistical report from Malta's Office of the Regulator of the Individual Investor Program (ORiip), 46 main applicants naturalized through the MIIP between July 2016 and June 2017 spent a total of €35,284,168 on real estate on Malta and Gozo, an average of €767,047.15 per property. Since 2014, MIIP-participants have spent a total of €71,190,233 on real estate.

- only 46 opted to buy (12%) during July 2016 and June 2017
- The rest 340 (88%) opted to rent (please see chart below from ORiip)

Property prices have increased by 5.5% in 2016 and 5.3% in 2017. The rate of increase in prices in Malta has been slightly higher when considering the EU's average, at an increase of 4.3% in 2016 and a further increase of 4.4% in 2017.
The IIP is not the main reason why real estate prices have soared. Rather, it's the economic growth of Malta and the fact that this has attracted upwards of 35,000 foreign workers in need of a residence. IIP applicants are at the higher end in terms of real estate portfolios, so the program's impact on property prices are restricted to this upper end of the market.
Individuals applying for citizenship by investment through Malta's Individual Investor Programme increasingly buy upmarket properties in the country and are not affecting the housing market's affordability for low-income earners or first time buyers
The majority buy in Sliema and St. Julian's (the case for our HNWI clients as well). On average, they've spent €868,173 on real estate in Malta, some 2.5 times the mandated minimum of €350,000 since the program opened in 2014.
It is Malta's economic growth that is causing real estate prices to rise, not the purchase requirement for Malta's investment programmes.

From 2014 onwards, there were signs of improved confidence in the Cyprus economy and real estate market, leading to increased transaction activity in the market. A further significant increase was recorded in 2016 (43%) with a subsequent increase of 24% in 2017. The total number of contracts during 2017 reached an eight-year high of 8.734 (2016: 7.063).

General number of transactions

We see increase in transactions amongst foreign buyers as well.

Foreign transactions

The number of transactions is increasing. However, it is very important to pay attention to the fact that foreigners have always been buying properties in Cyprus and we are far below the numbers of 2007 when 11.281 foreign transactions have been registered.

In 2017 we have seen the following developments

45% increase in sale contracts for high-end residential properties (>1,5 mln)
• The number of building permits increased by 7% in 2017 – number of building permits is the main indication of future supply
• The value of new building permits issued in 2017 increased by 49% on an annual basis across Cyprus

• The Cyprus Statistical Service (CYSTAT) has announced that prices for houses and apartments in Cyprus rose by an average by 0.6% in the second quarter of 2018 compared to the first quarter in its latest House Price Index (HPI). The HPI also reports that residential property prices in Cyprus have risen by 1.2% on an annual basis.

The increase in real estate property transactions and prices was largely driven by:

• The introduction of property tax incentives
• Business incentives which attracted multiple new businesses to Cyprus
• The launch of the investment programme, which has attracted foreign, mainly non-EU (Chinese, Russian, Indian and UAE) buyers;
• Increased demand from the domestic sector
• General improvement of the island's economy

To conclude, we can clearly see that CBI and RBI programmes have very positive influence on the real estate markets of the countries. They increase demand for properties as well as foreign direct investments which in turn stimulates economic growth, improves real estate markets, increases employment and general wellbeing of the population, and otherwise has an overall positive effect in all the countries.
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